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A privilege level in the x86 instruction set controls the access of the program currently running on the processor to resources such as memory regions, I/O ports, and special instructions. There are 4 privilege levels ranging from 0 which is the most privileged, to 3 which is least privileged. Most modern operating systems use level 0 for the kernel/executive, and use level 3 for application programs. Any resource available to level n is also available to level 0..n, so the privilege levels are "rings". When a lesser privileged process tries to access a higher privileged process, a General Protection Fault is reported by the OS.
It is not necessary to use all four privilege levels, Because the current Operating Systems like Windows, Linux , etc. mostly are using Paging mechanism and Paging only has one bit to specify the privilege level which is either Supervisor or User (U/S Bit). Windows NT uses the two-level system. The real mode programs in 8086 are executed at level 0 (highest privilege level) whereas virtual mode in 8086 executes all programs at level 3.